Chinese state-run banks start testing PBoC’s ‘e-wallet’

China’s largest state-owned banks have started testing the “electronic wallet” component of the People’s Bank of China’s “digital yuan” project, local media have reported.

The tests are being conducted in cities including Shenzhen, which borders Hong Kong. The municipal government of Shenzhen said it would cooperate in efforts to test the system for different applications, according to a circular published on August 7.

Banks are testing the e-wallet application to transfer money and make payments using the PBoC’s digital yuan, according to media outlet 21st Century Business Herald. The e-wallet, which can be downloaded as a mobile application, will be linked to a user’s national ID number or telephone number to enable fund transfers.

Participating banks include the country’s four largest commercial lenders: Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China and China Construction Bank. 

The project is also exploring ways to conduct fund transfers and payments via the mobile app without an internet connection.

After starting pilot tests of the digital yuan in the first half of 2020, the PBoC will continue research and development for the digital currency, it said during a teleconference on August 3. 

In April, China began pilot testing in four cities – Shenzhen, Chengdu, Suzhou and Xiongan – each with a different focus. In Suzhou, for instance, the test involves distributing transport subsidies to residents. In Shenzhen, it is being used to pay membership fees for labour unions and the ruling Chinese Communist Party.

Challenge to mobile payments systems

The PBoC’s e-wallet could challenge China’s dominant mobile payment platforms, Alipay and WeChat Pay. Like those systems, it allows users to link to bank accounts, transfer funds and make payments.

China’s digital currency is likely to be used in government-related areas first, such as utility bill payments and public transportation, said Li Quan, a finance professor with Nankai University in China. These features are also provided by China’s two biggest payment platforms, backed by Alibaba and Tencent, respectively.

In July, the PBoC’s digital currency research unit partnered with a ride-hailing firm, Didi, to test the digital yuan as a payment method. Didi now accepts Alipay and WeChat Pay on its ride-hailing platform. The firm is backed by investors including China Life Insurance and Singapore’s state-run investment fund, Temasek Holdings.

While the PBoC has tightened the regulation of payment firms since 2018, state-owned UnionPay has been pushing for wider adoption of its mobile payment app.

UnionPay’s mobile app had 240 million users by the first quarter this year, the company announced in March. Founded in 2002, UnionPay is a payment card network supported by the PBoC and the Chinese government.